Chrysler gets $4 billion U.S. government loan

NEW YORK (Reuters) - Chrysler LLC on Friday received an initial $4 billion emergency loan from the U.S. government, two days after the government completed a parallel payout to its larger rival General Motors Corp.

"This initial loan will allow the company to continue an orderly restructuring," Chrysler Chief Executive Bob Nardelli said in a statement.

U.S. Treasury Department spokeswoman Brookly McLaughlin confirmed that the government had sent the $4 billion in funds to Chrysler on Friday.

General Motors Corp received $4 billion in emergency loans on Wednesday. Both Chrysler and GM have said they need the infusion of government cash to meet payouts to suppliers at a time when a plunge in auto sales has drained their cash holdings.

Officials have not spelled out why the loan to GM and a separate $6 billion funding for its affiliated finance firm GMAC were completed ahead of the Chrysler transaction.

In an email to employees, Nardelli suggested that the complexity of the deals had delayed the first payout to Chrysler, which had been expected to be completed before the end of the year.

"The Treasury Department has been working to complete the multiple, complex financial arrangements quickly and sequentially. The magnitude of these discussions was significant," Nardelli said.

When major automakers release results on Monday, December auto sales are expected to show that industry-wide sales fell to the lowest full-year level since 1992.

Under terms of the government bailout, Chrysler and GM will have to submit restructuring plans by mid-February and demonstrate that they are viable by the end of March.

Chrysler is controlled by Cerberus Capital Management, and as the only privately held of the Detroit-based automakers it faced the most scrutiny in congressional hearings on the proposed bailout for the industry.

Cerberus also owns 51 percent of GMAC.

The Bush administration approved a $17.4 billion bailout for the auto operations of GM and Chrysler in December.

Of that total, GM has been promised another $9.4 billion in government loans under that program in addition to the $4 billion payment made on Wednesday. The final $4 billion of the bailout approved for GM will require Congress to approve the funding.

Chrysler was given $4 billion by the U.S. government after asking for $7 billon.

The bailout represents the second U.S. government rescue of Chrysler in 28 years.

Rival Ford Motor Co has not sought government loans but has asked for a $9 billion line of credit it could tap if business conditions worsen beyond its projections.

(Reporting by Nick Zieminski and Kevin Krolicki; Editing by Tim Dobbyn, Andre Grenon, Gary Hill)

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Who Saw The Housing Bubble Coming?

Bruce Bartlett

Some forecasters were prescient; financial leaders weren't.

The current economic crisis is raising many legitimate questions about the failure of economists and financial analysts to foresee the housing bubble and warn of its collapse.

There were, in fact, many warnings dating back more than seven years--but in the euphoria of rising home prices, no one listened. As time went by and no crash occurred, many of those doing the warning lost credibility or decided that perhaps they were wrong and moved on to other issues.

I first created a folder on the housing bubble back in 2001 and began collecting material on the subject. The very first piece I filed was an article from a September 2001 issue of Forbescalled "What If Housing Crashed?" by Stephane Fitch and Brandon Copple. Read today, the article was remarkably prescient.

Federal Reserve Chairman Alan Greenspan first addressed the question of a housing bubble in testimony before the Joint Economic Committee on April 17, 2002. He dismissed the idea--or, for that matter, any comparison to the stock market, which had recently gone through a high-tech bubble--on the grounds that housing was different because of substantial transaction costs and more limited opportunities for speculation.

Greenspan also argued that there really wasn't a single national market for housing, but rather a collection of many local markets. Even if a bubble emerged in one market, he said, there was no reason to think it would spill over into other markets.

In June 2002, I filed a report by economist Ed Leamer of UCLA noting that the ratio of home prices to rent was rising rapidly and that this represented a kind of price to earnings ratio for the housing market.

Like the stock market's P/E ratio, when it rises rapidly above historical norms in a short period of time, it's is a good sign that there is a bubble--and that it could burst quickly.

But in March 2003, Greenspan continued to deny the possibility of a housing bubble. In a speech to the Independent Community Bankers of America he said that any comparison between the housing market and a stock market bubble was "rather a large stretch."

Greenspan repeated his view that one could not generalize about the national housing market from other possible bubbles in a few isolated markets. He went on to argue that there was no evidence of excess supply in newly constructed homes and that the rate of housing starts was consistent with the growth of incomes and population.

Despite Greenspan's assurances that there was nothing alarming, it was apparent that a number of local markets, especially in California, were experiencing bubble-like conditions, with prices rising to clearly unsustainable levels. UCLA's Leamer proclaimed that a bubble definitely existed in the Los Angeles and San Francisco real estate markets in a June 2, 2003 report.

In September, economists Karl Case and Robert Shiller presented a very detailed analysis of the housing market to the Brookings Institution's panel on economic activity.

While conceding that economic fundamentals were favorable to rising home prices, they also noted that there were elements of bubble psychology in the housing market. Case and Shiller pointed to an increase in the buying of real estate for investment purposes and high expectations of housing price increases.

They also observed an increasing sense of urgency and opportunity among home buyers, who were plunging into real estate for fear of being left behind as they perceived their friends and neighbors growing richer--classic signs of a bubble.

By 2004, concerns about a housing bubble were pervasive throughout the popular media. But responsible authorities continued to throw cold water on them.

For example, in February, the Federal Deposit Insurance Corporation denied the existence of a housing bubble. It noted that there had not been a decline in national housing prices since the Great Depression. Advances in the structure of mortgage finance since that time, the FDIC concluded, made any repeat very unlikely.

The first report I have pointing to the potentially disastrous effects of a collapse in housing on financial institutions came from economist Paul Kasriel of Northern Trust on July 30, 2004. He noted that 60% of banks' earning assets were mortgage-related--twice as much as was the case in 1986.

If the housing market were to go bust, Kasriel warned, the banking system would suffer significant damage. And since the banking system is the transmission mechanism between the Fed and the economy, any serious downturn in that sector could make monetary policy impotent, thus pulling down the entire economy.

That same day, however, I received a report from Bear Stearns economist David Malpass arguing that the housing market was healthy and that much of the rise in prices simply represented a "catch-up" because they had lagged behind the rise in equity prices since the mid-1990s.

The Bear Stearns report also noted that rising household formations, declining unemployment, low interest rates, a decline in the inventory of unsold homes and the 1997 cut in capital gains taxes on owner-occupied homes as other reasons for its continued optimism.

In September, the International Monetary Fund called attention to the highly synchronized movements in housing prices internationally in its World Economic Outlook.

This suggested that there was greater liquidity in the housing finance market than others had generally assumed. The IMF further noted that interest rates were unusually low and bound to rise at some point as central banks necessarily tightened monetary policy to fend off inflation.

Indeed, the interest rate increases that had already occurred in 2004 were expected to sharply reduce the growth of housing prices in 2005, the IMF predicted.

But in October, Greenspan was still saying that the housing market was nothing to be concerned about. In a speech to America's Community Bankers, he pointed out that the vast majority of homeowners lived in their own homes--so if they sold one, they would have to buy another.

Consequently, there was little possibility of a general downturn in housing prices. While Greenspan acknowledged that there had been some increase in home buying for investment purposes, this represented only a small portion of the overall housing market. And while there was evidence of a rise in debt service ratios, he nevertheless saw household balance sheets as being in good shape.

Greenspan's view was shared by economists at the Federal Reserve Bank of New York. In December, they directly addressed the housing bubble question. Their report's bottom line? There was no bubble; housing prices were rising due to positive fundamentals and not from expectations of rapid price appreciation. And even if fundamentals turned negative, there was little likelihood that prices would drop significantly.

I published my first column on the housing bubble on Dec. 15, 2004. In hindsight, I see that I was overly impressed by the views of Alan Greenspan and the New York Fed. But I did raise red flags about loans becoming too easy, the decline in down payments and the spread of adjustable rate mortgages.

I concluded it would be "unwise to buy a house in the expectation of future price increases like those we have seen." I advised every homeowner to get out of adjustable-rate mortgages and into a fixed-rate mortgage as soon as possible.

I'm ending my discussion of this issue in 2004, but throughout the years since, a number of analysts have emerged on both sides of the housing bubble question. So I do not claim to be comprehensive in my review. I just wanted to call attention to a few of the more prominent analyses that crossed my desk when the housing bubble first caught my attention.

There were many economists who did see it coming, but there were many others of equal or greater prominence and authority who repeatedly insisted that there was nothing to worry about. Under the circumstances, ordinary investors can hardly be faulted for taking actions that unwittingly fueled the bubble and are now having disastrous consequences for themselves and the nation.

Unfortunately, it is in the nature of economic and financial forecasting that being right too soon is insignificantly different from just being wrong. And forecasters that are wrong when most of their community is also wrong never suffer for it. The trick is to be right just a little bit sooner than everyone else--but only a little bit.

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U.S. steel industry urges "buy America" recovery plan

WASHINGTON (Reuters) - The ailing U.S. steel industry is pressing President-elect Barack Obama for a public works plan that could be worth $1 trillion over two years to boost flagging demand for U.S.-made steel, the New York Times reported in Friday's editions.

Daniel DiMicco, chairman and chief executive of Nucor Corp, a giant steel maker, told the paper the industry was asking the incoming administration to "deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a 'buy America' clause."

The industry supports building mass transit systems, bridges, electric power grids, schools, hospitals and water treatment plants -- all of which would require large amounts of steel.

"We are sharing with the president-elect's transition team our thoughts in terms of the industry's policy priorities," Nancy Gravatt, a spokeswoman for the American Iron and Steel Institute, was quoted as saying.

Obama, who is to be sworn in as president on January 20, has not revealed details of his soon-to-be-announced plan for spurring the weakest economy since the Great Depression more than 70 years ago. Aides have indicated most of the package will probably go into infrastructure spending rather than tax breaks.

"If the president-elect really follows through, he'll fund a lot of mass transit projects," said Wilbur Ross, a Wall Street dealmaker who put together a steel conglomerate known as Arcelor Mittal USA.

"All the big cities have these projects ready to go."

Since September, U.S. steel output has plunged about 50 percent to its lowest point since the 1980s, largely because construction and auto production have fallen sharply.

The fall-off in production of appliances, machinery and other electrical equipment has also reduced steel orders, sending the price of a ton of steel down by half since late summer.

Industry executives are "adding their voices to pleas for a huge public investment program of up to $1 trillion over two years," the Times reported.

Imports, which account for about 30 percent of all steel sales in the United States, are also hurting as customers disappear, the paper said.

(Reporting by Jim Wolf; editing by Todd Eastham)

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The biggest CEO firings of 2008

One could argue ex-Lehman Brothers CEO Richard Fuld was the most infamous boss of 2008.

By Matthew Kirdahy

The bloodletting in the c-suite started in 2007. It still hasn't stopped.

Another year goes by and more chief executives get the ax — probably more than in any previous year. People shook their heads when Charles Prince III at Citigroup and Stanley O'Neal at Merrill Lynch got the boot in 2007. Now it look like they were lucky. They got out just in time.

Martin Sullivan of American International Group (let go in June), Kerry Killinger at Washington Mutual (September) and Richard Fuld of Lehman Brothers (leaving next month) are among the biggest names to be shown the door as a result of the economic crisis.

Their distinguished company includes James Cayne of the now-deceased Bear Stearns and Richard Syron and Daniel Mudd, the former CEOs of the mortgage buyers Freddie Mac and Fannie Mae.

"There are two kinds of CEO firings," says Noel Tichy, a professor at the Ross School of Business at the University of Michigan. "There are the crooks and there are the incompetents." This year the biggest departing names all fell into a gray area in between.

None was as corrupt as the executives embroiled in the infamous Enron and Tyco scandals of a decade ago, but you couldn't just say they were simply stupid either. CEOs in the financial services industry discovered that they had allowed their companies to take suicidal risks with other people's money based on bad or staggeringly incomplete information. Many of them have paid with their jobs.

Despite their prominence, these headline names compose just a small fraction of the 1,361 U.S. CEOs who left their jobs this year through November. That's up from 1,356 in all 12 months of last year. The final 2008 number may prove to be a record, beating the previous one of 1,478 set in 2006, according to data collected by the management consulting firm Challenger, Gray & Christmas.

What will 2009 hold? Mark Hodak, compensation consultant for Hodak Value Advisors in New York City, compares the current business environment to a sick patient with a fatal fever. "If we continue with the strains that we're dealing with now, we're going to have more departures," he says. "People have no idea how bad it can really get. There's a lot of strain on a lot of companies right now."

Three names stand out ahead of all others for likely rolling next year: Rick Wagoner of GM, Alan Mulally of Ford and Robert Nardelli of Chrysler. But that's assuming their companies can even last long enough for them to get fired.

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Federal Commission Recommends 50% Gas Tax

Posted by Samuel R. Avro

Falling gas prices aren’t necessarily a good thing. So says a federal commission appointed by Congress to investigate ways of building and repairing highways across the country.

Lower gas prices, a decrease in Americans driving habits, and more fuel efficient vehicles all add up to less tax revenue for repairing bridges and other transportation projects. The commission is expected to recommend to Congress later this month that a fuel tax of 50 percent be imposed on both gasoline and diesel fuel.

The National Commission on Surface Transportation Infrastructure Financing, a 15-member panel, wants to raise the federal gasoline tax from the current 18.4 cents per gallon to 28.4 cents per gallon. Diesel fuel would see a raise of between 12 and 15 cents per gallon.

At the same time, the commission will recommend tying the fuel tax rates to inflation.

According to data released by the U.S. Department of Transportation, Americans drove 100 billion fewer miles during the 12-month period between November 2007 and October 2008 compared with the prior year.

The recent drop in fuel prices is saving consumers more than $1 billion a day on their gasoline bill, according to one energy analyst.

“I’m not excited about a gas tax increase, but the reality is our current gas tax doesn’t pay for upkeep of the system we have now,” Adrian Moore, vice president of the Reason Foundation, a libertarian think tank in Los Angeles, and a member of the highway revenue commission told the AP. “We can either let the roads go to hell or we can pay more.”

Gas prices are currently at a 4 year low, and only 2 states have an average price of more than $2 a gallon — Alaska, where it’s $2.521 a gallon, and Hawaii, at $2.304.

The average price of gas across the nation rose Friday for the third consecutive day and now stands at $1.626, up almost a cent from the previous day, according to AAA.

Even so, prices are down by nearly 20 cents from the prior month, and are off by nearly 47%, or $3.052 from this time a year ago.

Since revenue from gas taxes are not sustainable, the financing commission will recommend that the nation incorporate a new system that taxes motorists according to how much they use roads.

The estimated annual gap between revenues and the investment needed to improve highway and transit systems was about $105 billion in 2007, according to a study by the Transportation Research Board of the National Academies. Their research also projected that the gap will increase to $134 billion in 2017 under current trends.

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How to Set New Year’s Financial Resolutions You Can Keep

by Jason Lankow

Every year it’s the same old story. You start with the best of intentions but somehow never manage to fulfill your New Year’s Resolutions. Perhaps you don’t even know how to get started. When it comes to getting your financial house in order, it’s even more important that you start now, so that you can meet specific deadlines that occur throughout the year. Follow this handy action plan in order to set New Year’s Financial Resolutions you can actually keep.

Common wisdom says that goals need to be concrete and include specific details about how and when they will be fulfilled. If you have gained weight in 2008, don’t just renew your gym membership and make vague promises of getting back to the gym. Instead, sign up for a workout with a personal trainer three days a week. When it comes to your personal finances, a general plan such as knowing more about how much money you are spending and where you are spending it is fine. But you should also set realistic budgets that mirror your actual spending in prior months.

Maintaining good credit is an important foundation for achieving the rest of your financial goals. So start by finding out where you currently stand with a credit report from CreditReport.com or Equifax. If your credit score is lower than 700 due to some outstanding debt, see if you can get those bills paid off as early in the year as possible. Pay the credit cards with the highest interest rate first and then move on to the ones that can be paid off in full so you can start with as clean a slate as possible.

Experts in “getting things done,” agree that it is best to list small, attainable goals rather than go for a lifestyle change overnight. By giving yourself simple tasks that you can even complete in five minutes, once a day, you will make headway over the course of a month.

The following questions are intended to help you set specific, measurable goals within different aspects of your finances. Use a personal finance management tool such as Mint.com to help you gain insights into your spending patterns and come up with answers to these questions. If you have a great suggestion or method that has worked well for you in the past, please comment and feel free to share links to interesting articles and websites that have helped you.

• What is the category of spending that concerns you the most?

  ___________________________________________________________

• How much did you average spending in this category last year?

  ___________________________________________________________

• What was the highest month within this category?

  ___________________________________________________________

• What was the lowest month?

  ___________________________________________________________

• What are your spending goals for this year compared to last year. In which categories and months can you lower your spending?

  ___________________________________________________________

i.e. if you spent $250 per month going out to eat in 2008, give yourself a target of $125 this month

• Who is going to hold you accountable? Email or call them now.

  ___________________________________________________________

• What are you going to do with the amount you save within this category (make it automatic thru electronic debit) – save or give?

  ___________________________________________________________

• How much money did you have in emergency savings at the beginning of 2008?

  ___________________________________________________________

• How much money do you have in emergency savings now?

  ___________________________________________________________

• What is your goal for the end of January for your emergency savings account?

  ___________________________________________________________

• By the end of February?

  ____________________________________

• By the end of the 2009?

  ____________________________________

• Have you seen a recent credit report?

  ____________________________________

  If applicable, list the most annoying and/or severe derogatory item on the report (i.e. collection, judgment, late credit card, car that was reported late but was actually on time).

• What is one action step that you can take TODAY towards resolving this (i.e. Make an initial phone call, draft a letter to the credit bureaus)?

  ____________________________________

Write down the next action step here and the date that you are going to do this by. Print out our financial resolution worksheet, fill it out and stick it on your fridge while you’re at it.

This should hopefully get you started, and help you to consider other areas of your finances (or other aspects of your life) that you want to transform in 2009. Again, we look forward to hearing your goals and how you plan to attain them along with your own success stories.

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Governors ask Uncle Sam for $1 trillion

PHILADELPHIA (Reuters) -- Governors of five states urged the federal government to provide $1 trillion in aid to the country's 50 states to help pay for education, welfare and infrastructure, as states struggle with steep budget deficits amid a deepening recession.

The governors of New York, New Jersey, Massachusetts, Ohio and Wisconsin - all Democrats - said the initiative for the two-year aid package was backed by other governors and follows a meeting in December where governors called on President-elect Barack Obama to help them maintain services in the face of slumping revenues.

Gov. David Paterson of New York said 43 states now have budget deficits totaling some $100 billion as tax revenues plunge.

"It's clear that the federal government needs to step in and jump-start the economy," said Gov. Deval Patrick of Massachusetts.

Public spending

The latest package calls for $350 billion to create jobs by building or repairing roads, bridges and other public works; $250 billion to maintain education; and another $250 billion in "counter-cyclical" spending such as extending unemployment benefits and food stamps, which are typically a responsibility of the states.

The remainder would be used to fund middle-class tax cuts, stimulate the embattled housing market and stem the tide of home foreclosures through a loan-modification program.

Gov. Jon Corzine of New Jersey said he hoped some of the $700 billion authorized by Congress in the Troubled Asset Relief Program would be available to help the housing market.

The governors said during a conference call with reporters that the plan had been discussed with Congressional leaders and the incoming administration, which had indicated its willingness to help.

"The Obama team has been very receptive in listening to us," said Gov. Jim Doyle of Wisconsin. He said "quite a number" of other governors back the initiative.

GOP governors

The Republican Governors Association, however, said the level of federal aid being sought would create a burden for the future.

"The proposal by the Democratic governors goes beyond things like 'shovel-ready' infrastructure projects and is essentially a bailout of these states' general funds," Nick Ayers, executive director of the Republican Governors Association, said in a statement. "Now is the time to focus on finding cost-effective ways to provide essential services without burdening future generations with ever greater debt."

Doyle of Wisconsin said the plan would allow states to maintain essential services at about the current level until 2010, when the national economy is expected to begin a recovery.

Obama's plan

The proposal comes amid expectations that the Obama administration, which takes office on Jan. 20, will provide hundreds of billions of dollars in economic stimulus to boost the shrinking U.S. economy and halt the loss of jobs.

Paterson of New York said his state's budget deficit has surged to $15.4 billion currently from $5 billion in April 2008, despite a 3.2% cut in the education budget.

Corzine said the money called for represents about 3% to 3.5% of the economy, equivalent to the amount that the economy is expected to contract by over the next two quarters.

In light of the $700 billion provided to bail out the financial industry, "It's not shockingly large," he said.

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Europe at odds over Israeli land offensive in Gaza

By James Mackenzie

PARIS (Reuters) - France condemned an Israeli land assault in the Gaza Strip on Saturday just hours after the Czech presidency of the European Union said the action was "defensive, not offensive."

The conflicting statements suggested disunity among European partners ahead of separate visits to the region by French President Nicolas Sarkozy and an EU delegation led by Czech Foreign Minister Karel Schwarzenberg.

France, which handed the EU presidency to the Czechs on January 1, has led calls for a cease-fire and hosted a meeting of EU foreign minsters to reinforce the message on Tuesday.

Israeli troops clashed with Hamas forces on Saturday as columns of tanks backed by helicopters advanced into Gaza under darkness, a Palestinian witness said.

In Prague, Czech EU presidency spokesman Jiri Potuznik said Israel, which launched air bombardments against Gaza a week ago in retaliation against rocket attacks from the Hamas-controlled area, appeared to be acting defensively.

"At the moment, from the perspective of the last days, we understand this step as a defensive, not offensive, action," he said.

Saeb Erekat, aide to Palestinian President Mahmoud Abbas, called for the world to condemn the Czech position.

"This is a vicious aggression against our people. The international community cannot stand silent ... This position (by the European Union's Czech presidency) deserves condemnation," told Al Arabiya television.

The French Foreign Ministry said: "France condemns the Israeli ground offensive against Gaza as it condemns the continuation of rocket firing."

It said the "dangerous military escalation" complicated efforts to end the fighting and bring aid to the area.

Further underlining the impression of European division, a British government source said of the Czech statement: "It is not the position of the British government."

In London, British Foreign Minister David Miliband urged both Israel and Hamas to agree to stop hostilities.

"Unfolding events show the urgent need for the immediate cease-fire that we have called for. The escalation of the conflict will cause alarm and dismay," he said in a statement.

Israeli troops and tanks had been massed on the border for days in readiness for an invasion as Israeli firepower pounded Gaza from land, sea and air and diplomatic efforts to arrange a cease-fire stalled.

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Obama Eyes $300 Billion Tax Cut

By JONATHAN WEISMAN and NAFTALI BENDAVID

WASHINGTON -- President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.

The size of the proposed tax cuts -- which would account for about 40% of a stimulus package that could reach $775 billion over two years -- is greater than many on both sides of the aisle in Congress had anticipated. It may make it easier to win over Republicans who have stressed that any initiative should rely more heavily on tax cuts rather than spending.

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President-elect Barack Obama and congressional Democrats are crafting a plan to offer as much as $310 billion of tax cuts.

The Obama tax-cut proposals, if enacted, could pack more punch in two years than either of President George W. Bush's tax cuts did in their first two years. Mr. Bush's 10-year, $1.35 trillion tax cut of 2001, considered the largest in history, contained $174 billion of cuts during its first two full years, according to Congress's Joint Committee on Taxation. The second-largest tax cut -- the 10-year, $350 billion package engineered by Mr. Bush in 2003 -- contained $231 billion in 2004 and 2005.

Republicans and business leaders hadn't seen specifics of the proposals Sunday night, but welcomed the idea of basing a bigger proportion of the stimulus plan on tax cuts. Their response suggests the legislation could attract relatively broad support, and it highlighted the Obama team's determination to win backing from varied interests.

Some Republicans, including Senate Minority Leader Mitch McConnell (R., Ky.), have warned against a careless stimulus plan that enables unfettered spending.

The largest piece of tax relief in the new plan would involve cuts for people who pay income taxes or who claim the earned-income credit, a refund designed to lessen the impact of payroll taxes on low- and moderate-income workers. This component would serve as a down payment on the "Making Work Pay" proposal Mr. Obama outlined during his election campaign, giving a credit of $500 per individual or $1,000 per family.

On the campaign trail, Mr. Obama said he would phase out a similar tax-credit proposal at around $200,000 per household, but aides said they haven't settled on an income cap for the latest proposal. This part of the plan is similar to a bipartisan initiative launched in early 2008, which sent out checks worth $131 billion.

Economists of all political stripes widely agree the checks sent out last spring were ineffective in stemming the economic slide, partly because many strapped consumers paid bills or saved the cash rather than spend it. But Obama aides wanted a provision that could get money into consumers' hands fast, and hope they will be persuaded to spend money this time if the credit is made a permanent feature of the tax code.

As for the business tax package, a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. Obama aides note that businesses would have been able to claim most of the tax write-offs on future tax returns, and the proposal simply accelerates those write-offs to make them available in the current tax season, when a lack of available credit is leaving many companies short of cash.

A second provision would entice firms to plow that money back into new investment. The write-offs would be retroactive to expenditures made as of Jan. 1, 2009, to ensure that companies don't sit on their money until after Congress passes the measure.

Another element would offer a one-year tax credit for companies that make new hires or forgo layoffs, which could be worth $40 billion to $50 billion. And the Obama plan also would allow small businesses to write off a broad range expenditures worth up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.

William Gale, a tax-policy analyst at the Brookings Institution think tank in Washington, said the scale of the whole package is larger than expected. He called the business offerings a true surprise, since most attention has been focused on the spending side of the equation, especially the hundreds of billions of dollars being discussed for infrastructure and aid to state and local governments.

"On the other hand, it was hard to figure out how they were going to spend all that money in intelligent ways, so it makes sense to do more on the tax side," Mr. Gale said. His biggest question about the latest proposal concerns the credits for hiring new workers or refraining from layoffs. Much of that money would likely go to companies that would have hired more people anyway, he said, adding that it is impossible to know what firms would have done without such a credit.

Business lobbyists are pushing hard for Congress to allow companies that haven't paid corporate income taxes to get a break, too. Start-up companies, alternative-energy firms and large corporations that have been swallowing losses for years -- such as automotive and steel companies and some airlines -- have already begun lobbying for such "refundability."

They argue that a provision to claim losses on back taxes will have little effect on the economy if firms that need it most -- struggling companies that weren't obligated to pay any taxes -- can't benefit from a tax break.

Mr. Obama, however, doesn't back payments to companies that haven't paid taxes, aides said. Instead, businesses that haven't been paying taxes would be able to get payments from tax credits they would have taken in 2008 and 2009 for incentives offered by Congress, such as the production tax credit offered to renewable-energy firms. These amounts would likely be relatively small.

"We're working with Congress to develop a tax-cut package based on a simple principle: What will have the biggest and most immediate impact on creating private-sector jobs and strengthening the middle class?" said transition-team spokeswoman Stephanie Cutter. "We're guided by what works, not by any ideology or special interests."

As these details are being worked out, Mr. Obama and his family left Chicago during the weekend for Washington. He will be on Capitol Hill Monday, first to meet with House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Harry Reid (D., Nev.), then with the broader bipartisan leadership of Congress. The stimulus package will be front-and-center in those discussions.

Democratic leaders and Obama aides acknowledge that congressional Democrats' initial goal of passing the recovery package before Mr. Obama's Jan. 20 inauguration is unrealistic. Now, they hope for passage before the Feb. 13 congressional recess.

Republicans are already criticizing parts of the stimulus package. Sen. McConnell, speaking Sunday on ABC's "This Week," questioned one of the biggest items, which would send as much as $200 billion to states largely to expand the federal share of Medicaid, the health program for the poor. He suggested structuring that aid as a loan, saying it would encourage states to "spend it more wisely."

An array of business tax cuts could help overcome such GOP opposition, enabling the Democrats to present their plan as a balanced mix of tax cuts and spending. It also would likely encourage business interests to lobby hard for its enactment.

Mr. Obama's team has spoken of wanting to attract significant Republican support, not simply picking up votes from a Republican moderate or two.

Obama aides have already enlisted business groups to rally behind spending for public-works projects. Norman R. Augustine, a former chairman and chief executive of Lockheed Martin Corp., will testify before the House Democrats' Steering and Policy Committee Wednesday in favor of an infusion of federal infrastructure spending. But the tax cuts may hold more sway with Republicans.

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Suicide bombing kills six in Pakistan

By CNN's Zein Basravi

ISLAMABAD, Pakistan (CNN) -- Two explosions have struck a small cafe in volatile northwestern Pakistan, killing six people, including two police officers, local police and an official said.

A paramedic treats a victim of a suicide blast at a hospital in Dera Ismail Khan on Sunday.

The attack happened Sunday evening in the town of Dera Ismail Khan in Pakistan's North West Frontier Province, a frequent scene of suicide attacks.

No one was killed in the first blast, which happened at a cafe near a local college, said Haji Abdul Rauf, the town's mayor.

Four residents and two police officers were killed and 20 others injured when a suicide bomber struck 10 minutes later, Rauf said.

The attackers were targeting police by attracting a crowd with the first blast, the mayor said.

A local journalist said two of the civilians killed were reporters who had arrived after the first explosion.

Pakistan's forces have been battling Taliban and al Qaeda militants in the North West Frontier Province and the Federally Administered Tribal Areas. Some of the Taliban militants conducting attacks in neighboring Afghanistan have been based in the North West Frontier Province and nearby tribal regions.

The resurgence of the Taliban has prompted U.S. commanders and the incoming Barack Obama administration to put more of a focus on confronting militants along the border.

The attack on Sunday came one week after a suicide car bomber -- apparently targeting people voting to fill a national assembly seat -- killed at least 37 people and wounded 16 others in the Bunair district of North West Frontier Province.

In November, a suicide bomber detonated his explosives in the midst of a funeral procession in Dera Ismail Khan, killing at least seven people and injuring 30 more, police said.

Days earlier, a suicide bomber struck a mosque during evening prayers in the Bajaur region of the North West Frontier Province, killing seven people.

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U.S. Resumes Filling of Strategic Emergency Oil Reserve

Posted by Samuel R. Avro

The falling price of crude oil makes this the opportune time for the government to fill its emergency oil reserves.

The U.S. Department of Energy (DOE) announced on Friday that it had begun purchasing 12 million barrels of crude oil for the nation’s Strategic Petroleum Reserve (SPR) in order to replenish stockpiles which were sold after hurricanes Katrina and Rita in 2005.

An aerial view of the Bryan Mound storage site of the Strategic Petroleum Reserve

“DOE plans to take advantage of the recent sharp decline in crude oil prices to enter the market,” the department said in a statement.

A Congressional moratorium imposed in May of last year, prevented the government from making purchases after crude oil spiked. Since hitting a high of $147 a barrel in July, crude oil has plummeted to the $30-$40 per barrel range, which allowed for the cancellation of the ban on purchases for the SPR.

Currently, the SPR has a storage capacity of 727 million barrels and an inventory of 702 million barrels (97%) stored in the SPR’s underground salt caverns located along the Gulf Coast of Louisiana and Texas.

“The SPR is a critical component of our nation’s energy and national security,” DOE spokeswoman Healy Baumgardner said in a statement.

The reserve was created in 1975 in the aftermath of the Arab oil embargo to provide a cushion against severe supply disruptions.

In the event of an emergency cut to supplies, the government can authorize for crude oil to be released to the public. The DOE hopes to have 70 days of imports stored in the reserves by 2009.

The department also said that an additional 2.18 million barrels will be bought to make up for missed allocations, and refiners are being asked to return 5.5 million barrels that were loaned from the U.S. reserve last year after hurricanes Gustav and Ike.

Crude oil for February delivery closed at a little above $46 a barrel Friday, after gaining 3.5 percent during trading on the New York Mercantile Exchange. In the aftermath of Hurricane Katrina in September, 2005, crude was selling between $62 and $67 a barrel on the spot market.

“Activities to resume SPR fill are taken in accordance with the provisions of the Energy Policy Act (EPAct) of 2005, which directs that DOE fill the SPR to its authorized capacity of one billion barrels, and advances the President’s agenda to increase the Nation’s energy security,” the DOE said in its press release.

The reserve held 567 million barrels when President George Bush took office in 2001.

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Series of Powerful Quakes Kills 3 in Indonesia

By THE ASSOCIATED PRESS

JAKARTA, Indonesia (AP) -- A series of powerful earthquakes at dawn killed at least three people and injured dozens more in remote eastern Indonesia on Sunday, cutting power lines and badly damaging buildings.

A 7.6-magnitude quake struck at 4:43 a.m. local time (1943 GMT) about 85 miles (135 kilometers) from Manokwari, Papua, at a depth of 22 miles (35 kilometers), the U.S. Geological Agency said. It was followed by 10 aftershocks and a second major 7.3-magnitude tremor that sent small tsunamis into Japan's southeast coast, but there were no reports of damage there.

In Indonesia three bodies were found including a 10-year-old girl, hospital director Hengky Tewu told The Associated Press.

''Her head was crushed. We have our ambulances picking up two more,'' he said. Another 19 patients at the hospital were treated for broken bones, cuts, crushed fingers and other injuries.

Papua police chief Maj. Gen. Bagus Ekodanto said he received reports that a hotel and rice warehouse had been ''destroyed,'' but he did not know if anyone had died.

Attempts were under way to search for possible victims.

Several stories of the Mutiara Hotel in the main city Manokwari collapsed, said Ina, a nurse at a navy hospital treating 20 quake patients. Like many Indonesians she goes by a single name.

Electricity went off and people in the coastal city of 167,000 fled their homes in the dark, fearing a tsunami, said Hasim Rumatiga, a local health official. The Indonesian Meteorology and Seismology Agency issued a tsunami alert, but it was revoked within an hour after it was determined the epicenter was on land.

Japan's Meteorological Agency said tsunamis of 4 inches (10 centimeters) to 16 inches (40 centimeters) in height splashed ashore in towns along the coast. It also warned that bigger tsunamis were possible later. Television broadcasts of the coastal areas showed calm beaches and cars driving as normal on roads near the ocean.

The damage in Indonesia was still be being assessed.

''My son's head was wounded when a cabinet fell on him,'' said Ferry Dau, a father of two who said the walls in his house were cracked. ''It was very strong and scary. The power and phones went dead after the utility lines fell down.''

Rahmat Priyono, a supervisor at the National Earthquake Center, said there was no immediate information on casualties or damage. ''But since the epicenters were on land, they have a potential to cause significant damage.''

Relief agency World Vision Indonesia was flying in 2,000 emergency provision kits, including canned food, blankets and basic medical supplies, said spokeswoman Katarina Hardono.

Papua, about 1,830 miles (2,955 kilometers) east of the capital Jakarta, is some of the nation's least developed territory. A low-level insurgency has simmered in the resource-rich region for years and it is off limits to foreign reporters.

Indonesia straddles a chain of fault lines and volcanoes known as the Pacific ''Ring of Fire'' and is prone to seismic activity. A huge quake off western Indonesia caused the 2004 Indian Ocean tsunami that killed about 230,000 people, more than half of them in Sumatra.

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114-year-old U.S. woman to be world's oldest

LOS ANGELES, California (CNN) -- Gertrude Baines, a 114-year-old California resident, will likely be crowned the world's oldest woman, according to the organization that keeps track of such honors.

Gertrude Baines told CNN two years ago that she has taken good care of herself, "the way (God) wanted me to."

The previous oldest woman was Maria de Jesus, who died this week in Portugal at age 115, Guinness World Records said.

Baines -- born to former slaves in a small town south of Atlanta, Georgia, in 1894 -- now lives in a Los Angeles nursing home.

Baines appeared cheerful and talkative when the Los Angeles Times interviewed her in November as she cast her vote for Barack Obama for president, whom she said she supported because "he's for the colored people."

"I'm glad we're getting a colored man in there," she said.

Baines apparently prefers using the older term for her race. She was well into her 70s when "African-American" became the common reference in the United States. Watch Baines speak to CNN

She told the Times she spends most of her time "doing nothing but eating and sleeping."

When CNN interviewed Baines two years ago, she was asked to explain why she thought she has lived so long.

"God. Ask him. I took good care of myself, the way he wanted me to," Baines said.

Her only child, a daughter, died of typhoid fever at age 18.

Much of her long life was lived in Ohio, where she worked as a "house mom" at a state university. She eventually divorced and traveled to Los Angeles, where she retired.

Baines will not officially be given the title until after Guinness World Records completes an investigation, the organization said.

"Maria was crowned the world's Oldest Living Woman by Guinness World Records on 28 December upon the death of Edna Parker," the group said.

Parker -- an American -- was 115 years, 220 days old when she died November 26, 2008, in an Indiana nursing home, it said.

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Israeli Troops Launch Attack on Gaza

By ISABEL KERSHNER and TAGHREED EL-KHODARY

JERUSALEM — Israeli tanks and troops swept across the border into Gaza on Saturday night, opening a ground war against the militant group Hamas after a week of intense airstrikes.

Israel’s stated goal was to destroy the infrastructure of Hamas, the militant Islamic group that controls Gaza’s government, and the military warned that the campaign could take “many long days.”

The assault brings new risks and the prospect of many new casualties on both sides in a confrontation that, before this phase began, had already cost the lives of more than 430 Palestinians and 4 Israelis.

While a ground war in densely populated Gaza is likely to increase the civilian toll there, the Israeli Army also faces new threats. Since seizing control of the territory a year and a half ago, Hamas has been able to smuggle in more and better weapons. Its more sophisticated arsenal has been on display in recent weeks, and even under heavy fire the group has shown its ability to keep hitting Israeli cities with long-range rockets.

Sharp explosions rang out across Gaza, and tank fire and airstrikes lit the darkened sky well into Sunday as Israel continued to pound the area by land, air and sea. The Hamas military wing said it was firing mortars at approaching Israeli troops.

Palestinian hospitals reported three civilians killed by midnight, and Al Aksa television, run by Hamas, reported that five Israeli soldiers had been killed. An Israeli military spokesman rejected that claim. Israel did say, though, that 30 of its soldiers had been wounded since the start of the ground campaign.

World leaders called on Hamas and Israel to accept an immediate cease-fire, and in several European cities tens of thousands of protesters demanded that Israel end its campaign. Meanwhile, the Bush administration said it was working toward a new cease-fire, but rather than calling for a halt to military action urged Israel to “be mindful of the potential consequences to civilians.”

In a statement, the Israeli military said a key objective was “taking control” of the rocket launching sites Hamas has used to fire at southern Israel. Rockets fired from Gaza have plagued southern Israel for years, and they have drawn the military into the coastal territory repeatedly since troops formally withdrew and the Jewish settlements there were evacuated in 2005. A 48-hour raid in March 2008, aimed at inflicting a cost on Hamas for its continuing rocket fire, killed nearly 100 Palestinians.

Israeli officials have said repeatedly that it is not their aim now to fully reoccupy Gaza. But it was clear that the military expected a grueling operation.

“This will not be easy and it will not be short,” Defense Minister Ehud Barak said on national television shortly after the ground invasion began. He did not elaborate on how long Israel hoped to hold the rocket-launching sites.

The ground operation began after eight days of intensive attacks by Israeli air and naval forces on Hamas security installations, weapons stores and symbols of government in the Palestinian enclave.

“This has always been a stage-by-stage process,” Shlomo Dror, a Defense Ministry spokesman, said in a telephone interview. “Hamas can stop it whenever it wants,” by stopping its rocket fire, he said.

Hamas leaders in Gaza were in hiding, but a Hamas spokesman said Saturday night by video that the “moment of decision has arrived” and that Gaza would be the Israeli Army’s “graveyard.”

Hamas has also threatened to use the invasion as an opportunity to capture Israeli soldiers. The group has been holding an Israeli corporal, Gilad Shalit, hostage for more than two years.

The exact number of troops entering Gaza was not being publicized, but the military said the operation involved “large numbers” of forces including infantry, tanks, engineering and artillery corps. On Saturday night, the Israeli prime minister’s office said that a call-up of thousands of army reserve troops, approved earlier, had begun.

Before Israel started the invasion, warplanes and ground artillery carried out heavy strikes on Saturday. Many of those attacks were on open areas around Beit Hanoun and the main route connecting the north and south of Gaza, most likely to clear those areas of mines and tunnels and to hamper movement before troops entered.

A mosque in northern Gaza was also hit, during evening prayer time, in what witnesses said was an Israeli airstrike. At least 11 worshipers were killed and about 30 wounded, according to Palestinian hospital officials. The Israeli military had no immediate comment.

The air force has struck several mosques in the past week, with the military saying they served as Hamas bases and weapons stores.

The Israeli Army also dropped thousands of leaflets into some residential districts warning inhabitants to evacuate their homes. Because of “the activity of terrorist groups,” the leaflets said in Arabic, the army “is obliged to respond quickly and work from inside your residential area.” Many residents of one apartment block in Gaza City said they had nowhere else to go and would stay in their homes.

An Egyptian-brokered truce between Israel and Hamas, which took effect last June, began to break down in November, and Hamas declared it over on Dec. 19. Since then, rocket fire out of Gaza has intensified.

On Saturday, a rocket hit an apartment building in the major port city of Ashdod, about 20 miles north of Gaza, lightly wounding two Israelis. Other rockets landed in the coastal city of Ashkelon and in the Negev Desert town of Netivot.

The latest round of rocket fire has demonstrated the extent to which Hamas has been able to upgrade its arsenal with weapons parts smuggled into Gaza, according to American and Israeli officials. Compared with the crude, homemade Qassam rockets it had used in the past, the latest rockets have been more accurate and have flown farther — close to two dozen miles, enough to reach the southern Israeli cities of Ashdod and Beersheba.

President Bush, in his weekly radio address to the nation on Saturday, said Hamas had instigated the violence last week with rocket barrages “that deliberately targeted innocent Israelis.”

Expressing concern about the humanitarian situation facing the people of Gaza, he added that the United States was “leading diplomatic efforts to achieve a meaningful cease-fire that is fully respected.”

President-elect Barack Obama continued to defer publicly to the Bush administration after the ground campaign began. “The president-elect is closely monitoring global events, including the situation in Gaza,” said Brooke Anderson, his chief national security spokeswoman. “There is one president at a time, and we intend to respect that.”

The United Nations Security Council held a closed meeting, called by France, on Saturday. Earlier, Secretary General Ban Ki-moon called for “an immediate end” to Israel’s ground operation, and asked Israel to “ensure the protection of civilians and that humanitarian assistance is able to reach those in need.”

Before the ground war began, hospital officials in Gaza City put the first week’s Palestinian death toll at more than 430, including 26 women, 74 children and an unknown number of male civilians. Three Israeli civilians and one soldier had been killed by rocket fire.

World reaction was intense and mixed. While thousands of protesters marched in cities across Europe to demand a halt to the Israeli bombing, in Prague, a spokesman for the new Czech presidency of the European Union said Israel’s actions were “defensive, not offensive.”

Other European countries quickly distanced themselves from the Czech position. The French Foreign Ministry condemned “the Israeli ground offensive against Gaza as it condemns the continuation of rocket firing.”

In London, the British foreign secretary, David Miliband, urged both sides to accept an immediate cease-fire.

More than 20,000 demonstrators marched against the Israeli air campaign in Paris and more than 10,000 in London, where some threw shoes at the prime minister’s residence, a particularly Arab form of protest that has gained worldwide currency since an Iraqi journalist hurled his shoes at President Bush last month in Baghdad.

Both protests were held before the ground invasion began. Large protests also took place in at least seven other European countries and in Kuwait, Israel and New York.

The Israeli military said Saturday evening that the air force had struck about 40 Hamas targets during the day, including weapons storage facilities, smuggling tunnels, rocket launchers and launching sites. Palestinians said the airstrikes also hit the American International School, a private institution in northern Gaza, killing a school guard.

Israel has also been firing on the homes of Hamas’s military leaders, and on Saturday struck a vehicle in Khan Yunis carrying Mohammed Maaruf, whom the Israeli military described as an officer in the Hamas ground forces. Another strike killed Mohammad al-Jammal, 40, who was said in Gaza to be a Hamas military commander, according to the news service Agence France-Presse. Israel said he was responsible for the entire rocket-launching operation in all of Gaza City.

But in Shifa Hospital in Gaza City, most of the wounded being brought in on Saturday seemed to be civilians.

Salah Abu Rafia, 38, was accompanying wounded relatives, including his 10-year-old son, Zeid. Mr. Abu Rafia said that an F-16 warplane fired missiles around his house in the Zeitoun neighborhood, west of Gaza City, while the family was sitting outside. He said that Hamas fighters had been in the area, but that he had been afraid to tell them to go away. They disappeared as soon as they heard the planes, he said, escaping without injury.

“We are the ones paying the price,” he added.

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Gaza Ground Invasion Beginning

By: Siun

Israel launches ground operation in Gaza Strip

Update #2 -Jerusalem Post:

The IDF said that a large amount of Armored Corps, Engineering Corps and Infantry troops entered the territory with the purpose of destroying Hamas infrastructure and preventing rocket fire by taking control of launching pads in northern Gaza.

The IDF warned that terrorists using civilians as human shields would bear full responsibility for their fate.

Israeli forces may have begun the ground invasion of the Gaza Strip. AFP and more are reporting that Israel has begun heavy shelling of the northern sections of Gaza and there are unconfirmed reports that the tanks are rolling. CNN reported an hour ago that Israel was warning Gazans to leave their homes and the northern sectors of the Strip:

Leaflets signed by the commander of the Israeli military were dropped over northern Gaza on Saturday morning, warning residents to "leave the area immediately" to ensure their safety.

Amidst appeals from the UN and protests around the world calling for a cease fire, the White House signalled it's ok for a ground invasion.

The Israeli press has reported that the mission was approved as a short but major operation. Some idea of the actual Israeli plans may be seen in this translation from Missing Links of an Israeli Channel Two report from March 2008 following a visit from Condi Rice:

...Israeli Defence Minister Ehud Barak has gotten the green light from the Security and Political Council of Ministers, which met yesterday to decide how to end the problem of the Qassam rockets, to initiate implementation of the new plan aimed an ending the problem of the Palestinian Qassam rockets aimed at southern Israel.

The televised report cited high-level security sources as saying Barak intends to plan for the removal of tens of thousands of Palestinians from the northern Gaza Strip, namely from the region that the resistance uses for the launch of these rockets, and to move them toward Gaza City and to confine them there. The Israeli reporter added that Barak is turning to legal advisers in the Defence Ministry, in order to obtain legal authorization for the removal of the Palestinian civilians...

The reporter said that once [or if] the plan becomes operational, it would start immediately: In the first stage there would be a drop of leaflets advising residents to leave their homes, in addition to special radio announcements in Arabic directed to the residents, and in the event residents didn't obey the warnings, the occupation army would begin bombing the inhabited areas, in order to compel them to leave their homes and go to Gaza City.

The Council [of Ministers], which met yesterday after the departure of the American Secretary of State Condoleeza Rice, stressed that they did not agree with previous army planning for [only] a partial end to the Qassam rockets. And the Council decided to target the leaders of Hamas, political and military alike, and to destroy every symbol of Hamas authority in the Gaza Strip.

This report was confirmed by the Jerusalem Post at that time (h/t markfromireland). We know, from reporting in Ha'aretz, that the Israeli leadership began planning for the current attacks before entering the Egyptian negotiated cease-fire which expired on December 19th and used the cease-fire as an opportunity to prepare. Add in two months of forced starvation for the people of Gaza which seems now to have been designed to weaken their resistance and it seems all too likely that what we are watching today is the culmination of those plans made back in March right after consultations with Condi Rice.

Such a plan would be a violation of the Geneva Convention (pdf) that "Parties to a conflict shall at all times distinguish between the civilian population and combatants in order to spare civilian population and property. Neither the civilian population as such nor civilian persons shall be the object of attack. Attacks shall be directed solely against military objectives."

Such a plan of forced evacuation would in fact be the very definition of ethnic cleansing:

The United Nations Commission of Experts, in a January 1993 report to the Security Council, defined “ethnic cleansing” as “rendering an area ethnically homogenous by using force or intimidation to remove persons of given groups from the area.”

Col. Pat Lang at Sic Semper Tyrannis (a must read in these times) points our that the Israel (and US?) plans may not go so smoothly however:

Muslim militiamen of the Hizbullah, Hamas, Jeish al-Mahdi, etc. varieties have a major advantage in fighting the Israelis. These Muslim fighters all believe in an afterlife in which they will be rewarded for their shihada, their testimony, their martyrdom in what they believe to be the path of God. If you do not think that they believe that, then you are truly clueless. There are not many Israeli Jewish soldiers who think the same thing. Some, but not many. This makes for a wildly disparate attitude towards casualties. In Lebanon the Hizbullahis wore body armor and dug in well. They did that because these men were valuable assets, not because they were not willing to "be all they could be."

"More difficult than many people anticipated." Really? Were Feith and Wolfowitz involved in the planning?

Meanwhile the casualty count in Gaza is already 425, possibly more. How many more before this ends?

(Special h/t to markfromireland for much help and pointers on international law)

Photo: IDF Merkave MK IV from wikipedia commons

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